Incident: In 2023, the company achieved operating revenue/net profit attributable to mothers/net profit deducted from non-net profit of $1,48.8/30.4/1.90 billion, which were -26.3%, -53.9%, and -56.6%, respectively. Among them, 23Q4 achieved revenue/net profit to mothers/net profit deducted from non-net profit of 34.5/37/270 million in a single quarter, -15.6%, -66.1%, and -64.9% year-on-year, respectively. 2024Q1 achieved revenue/net profit/deducted non-net profit of $33.8, 350, and 170 million, compared with -7.9%, -62.0%, and -66.0% year-on-year, respectively.

Sales of thick yarn have increased significantly, and profits are expected to recover under the industry's repricing. In 2023, the company sold 2.481 million tons of thick yarn and products, YOY +17.6%. Among them, sales volume in the 23Q4 single quarter is expected to increase by more than 10% year-on-year. Affected by downstream inventory replenishment and company share growth, we expect sales volume to increase by more than 20% year-on-year in a single quarter in 24Q1. Affected by the imbalance between supply and demand in the industry in 2023, the average price of thick yarn declined overall. Affected by the price rescheduling of wind power yarn products, we estimate that the average price of coarse yarn and non-net profit of the 24Q1 company still declined month-on-month. At the end of March, many companies in the glass fiber industry resumed their prices. The company recharged 200-400 yuan/ton of direct yarn and 300-600 yuan/ton of silk cake yarn. The implementation results are expected to be good. We believe that there is still room for price recovery in the industry. First, although the industry's overall profit was repaired, small and medium-sized manufacturers were still in a state of loss to varying degrees; second, judging from Q1, the downstream demand sector all showed varying degrees of recovery. Among them, thermoplastic, electronics, and wind power related fields performed relatively better, and the overall supply and demand pattern of the industry was improving, and glass fiber yarn inventories of key enterprises were affected by downstream inventory replenishment and terminal demand digestion, and began to decline rapidly. According to Zhuochuang information, the glass fiber yarn inventory of key enterprises dropped by 60,000 tons at the end of April, compared to 43,000 tons at the end of December 23 28.8%

Sales of electronic cloth have maintained rapid growth, and the continuation of price recovery is expected to be even stronger. In 2023, the company's electronic cloth sales volume was 836 million meters, YOY +19.1%. We expect the company's electronic cloth sales to increase by more than 20% year-on-year in the 24Q1 single quarter and continue to grow rapidly. In mid-April, the company began repricing of electronic cloth. The reprice of G75 yarn was 400-600 yuan/ton, and 7628 e-cloth was 0.2-0.3 yuan/meter. After our judgment was reinstated, most manufacturers in the industry still showed losses to varying degrees, but the company's cost advantage was obvious, and it is expected that e-cloth will remain profitable. According to Zhuochuang information, Q1 Taishan's glass fiber production capacity of 50,000 tons and Sichuan's glass fiber production capacity of 30,000 tons were all cooled. We expect the supply side of electronic yarn to shrink in 24. Considering the current low inventory in the industry, it is expected that the price recovery of electronic cloth will be more sustainable.

The expansion of production capacity is progressing steadily, and the product structure continues to be optimized. According to the company's announcement, it is expected that the first phase of the Huai'an project's 100,000 ton production line is expected to be put into operation in 24H1, and the 200,000 ton production line in Jiujiang Phase II will be put into operation depending on market conditions. The company's production capacity continues to expand and has growth potential, while demonstrating the company's absolute leading position and competitive advantage. The company's product structure continues to be optimized. In addition to making every effort to build a “troika” of wind power, thermoplastic, and electronic yarn, the company is actively developing products in the field of photovoltaic frames with downstream customers. According to the company's announcement, the company's downstream photovoltaic frame composite manufacturers have certified major photovoltaic module manufacturers. Some have achieved batch supply in 24, and it is expected that more volumes will be released in 25-26.

Investment advice: We slightly raised the company's net profit from 24-26 to 26.34/4.2 billion (the 24-25 profit forecast was 2.5/30 billion), mainly considering that terminal demand recovered to varying degrees, and that both thick glass fiber yarn and electronic cloth began to recharge prices, and slightly raised the average price assumption for thick yarn and electronic cloth. The adjusted profit forecast corresponds to the current stock price PE of 19.2/15.0/12.2 times, and PB of 1.7/1.5/1.4 times. Considering the bottom of the industry, the company's production capacity continues to expand, the product structure continues to be optimized, and the “buy” rating is maintained.

Risk warning: Demand falls short of expectations; industry production capacity has expanded drastically; energy costs such as natural gas and electricity have risen sharply.